Financial goals are nothing but the future expenses which are apart from the regular expenses and come in lump sum in addition to your regular expenses.
We have to be prepared for funding them because our regular income may not have the capacity to accommodate them.
There are majorly three types of expenses in life.
- Liabilities: eg. household expenses, life style expenses, EMI’s of existing loans, Dependents expenses etc.
- Responsibilities: eg. Children’s higher education , marriage (nowadays it is optional), your retirement , creation of medical fund after retirement and day to day medical expenses which may not be covered by Mediclaim.
- Aspirations: eg. Buying a car, international tours, domestic tours, buying a real estate property other than residential house, cars, wealth creation etc.
Out of the above expenses 2 and 3 are considered as financial goals.
Why setting up financial goals are important
Even though we may be salaried, or businessman, or a professional, we have some goals to achieve. These goals give us the purpose to work and plan towards and execute. In the same way we have to plan our life, as well as achievements for life.
It is all about how you would like to see your life to be financially.
How to setup a financial goal ?
This is one of the important questions everybody asks especially when it comes to child education funding plan. “The problem is my child is too small and I don’t know what type of education he will go for then how can i plan for it”. This is a normal answer. Even deciding when to retire with a decent retirement corpus can be termed as a financial goal.
However financial goal for children’s higher education doesn’t mean any specific education but it is about the funds which we have to make available. Having money is not a problem if you plan for say -Rs.1500000/- for higher education and because of some means your child doesn’t use it then this will help you to achieve some of your other future goals, faster. But if your child requires Rs. 1500000/- and you have prepared for 500000/- will create a big problem.
If you have a question such as : “ How I can predict the expenses at that time as I don’t know what would be the situation then “ this is where a financial planner will help you , you have to plan for all your future expenses in today’s terms and the financial planner will help you calculate the future value by factoring in appropriate rate of inflation.
For example, If you are planning to fund Rs.500000/- in today’s terms for higher education of your child who is 2 years old , considering say 11% growth in expenses you will be requiring approx.Rs.2656000/- at your child’s age 18.
Advantages of setting up financial goals
- Gives clarity about the expenses in future.
- We get to know the time duration available for the specific financial goal.
- We can plan the strategy to achieve these goals.
- We can analyze where these goals are affordable or not and rework the financial goals if needed.
- It increases the success rate of achieving financial goals which ultimately gives you satisfaction.